Q: My parents want to sell their home. It was built in 1860 and they have lived in it since 1978. It is totally paid off.
The house is located on 5 acres and my parents have decided they would like to build a new modular home. This would be a less expensive alternative, since they already own the property.
My husband and I would like to buy their 1860s home as our first home. We’d prefer to do this without lawyers and real estate agents getting involved. Is this something that can be done?
A: Anything is possible. But when purchasing real estate, you’re better off having someone involved who knows the process, knows what your state requires in terms of disclosures, and can assist you in preparing the documents needed in case something goes wrong.
In your situation, you clearly don’t need a real estate agent (unless your parents have no idea how much the house is worth). But, you do need a real estate attorney.
Why? From your letter, it’s clear that your parents, if they agree to sell the house and build another one on the same lot, will need to subdivide their land. That means they will have to legally separate the one parcel into two parcels of land.
You can’t just spray paint a line down the center of the backyard. Subdividing the lot is a legal process, and you must abide by the rules and regulations of your local municipality. They’ll most likely need an attorney to separate the lot into two lots, and you’ll need a real estate attorney to make sure they’ve done it right.
Next, you’ll need to purchase title insurance. Although your parents have owned the property since the 1970s, someone else owned it before them, all the way back to the mid-1800s, when the house was built. If the chain of ownership isn’t perfect somewhere, there is a risk that you — and your parents — could face another claim of ownership sometime in the future. Title insurance protects against that risk. You’ll need to purchase an owner’s policy in addition to a lenders policy.
Which brings me to my next question: Are you getting a loan to buy your parent’s home? Or, are they loaning you the cash you need to buy their home? If you’re using a lender, you can go on the Internet to do some shopping around with regard to rates, points, and fees. Then, armed with that knowledge, you can get preapproved for your loan at one of the lenders you looked at online or at a local mortgage brokerage firm.
If your parents are going to be the lender, your attorney can prepare loan documents in addition to the purchase documents. Either way, you’re going to have mounds of documents to plow through and sign. Helping clients read and understand the documents they sign is one of the most important things an attorney can do.
The good news is that most real estate attorneys charge a flat fee to assist you with the purchase or sale of a home, from the negotiations all the way through the closing.
When shopping for an attorney, ask about the fee upfront. A good attorney will spell out the fee, what he or she will do for that fee, and when it must be paid. Your parents will also need a real estate attorney — no, you shouldn’t use the same one — in order to subdivide their land.
Unless what you really want to do is to buy the house but not the land on which it sits — which would be a huge mistake.